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Yuan weakens as renewed virus fears buoy dollar

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    SHANGHAI, Sept 23 (Reuters) - China's yuan weakened against
the dollar on Wednesday as renewed global concern about a new
wave of coronavirus cases and strong U.S. housing data lifted
the greenback.
    A softer central bank fixing also weighed on the yuan. The
People's Bank of China set the midpoint rate for its daily
trading band at 6.7986 per dollar prior to market
open, its weakest fixing in a week.
    Spot yuan opened at 6.7920 per dollar and was
changing hands at 6.7959 at midday, 141 pips weaker than
Tuesday's late session close.
    The currency has softened since touching 6.7501 to the
dollar on Sept. 17, its strongest level since late April 2019.
    Nevertheless, a trader at a foreign bank said factors
continue to support a firmer yuan.
    "It's hard to say where the bottom is for USD/CNY. Recently
there's been a risk of retracement. But if you look at the
basket, the yuan is still rising," said a trader at a foreign
    The Thomson Reuters/HKEX Global CNY index, which
tracks the onshore yuan against a basket of currencies on a
daily basis, touched a high of 93.99 on Wednesday, near a more
than five-month high touched on Sept. 17.
    The dollar strengthened on Wednesday, supported by data that
showed U.S. home sales surged to their highest level in nearly
14 years in August, despite a warning by a prominent Federal
Reserve official of the risk of a long, slow recovery if the
U.S. Congress fails to pass additional stimulus.
    A second wave of coronavirus infections in Europe and
Britain also boosted the global dollar index, which rose
to 94.19 from the previous close of 93.975.
    Despite the yuan's weakness on Wednesday, UBS Wealth
Management's chief investment office said that it had recently
raised its year-end forecast for the yuan to 6.7 per dollar from
6.8, based on better-than-expected Chinese economic data,
expectations of improving consumption and a largely stable
dollar index.
    "Although the yuan is biased toward strengthening before the
end of the year, the exchange rate is likely to oscillate
between 6.65 and 6.95 in the next three months due to the U.S.
election and the possibility of continued tensions between China
and the U.S.," UBS said.
    Morgan Stanley has hiked the chance of China being added to
one of the world's top government bond indexes later this week
to 90% after the country made some additional improvements to
its market practices.
    The actual inclusion in the World Government Bond Index
(WGBI) will happen in September 2021 with a 20-month phase-in.
Morgan Stanley estimates it could help funnel $60-$90 billion of
investment money into China in the next few years and $3
trillion over the next decade.

    The yuan market at 4:17AM GMT: 
 Item               Current  Previous  Change
 PBOC midpoint      6.7986   6.7872    -0.17%
 Spot yuan          6.7959   6.7818    -0.21%
 Divergence from    -0.04%             
 Spot change YTD                       2.46%
 Spot change since 2005                21.79%
    Key indexes:
 Item            Current     Previous  Change
 Thomson         94.1        93.88     0.2
 CNH index                             
 Dollar index    94.19       93.975    0.2
*Divergence of the dollar/yuan exchange rate. Negative number
indicates that spot yuan is trading stronger than the midpoint.
The People's Bank of China (PBOC) allows the exchange rate to
rise or fall 2% from official midpoint rate it sets each

 Instrument            Current   Difference
                                 from onshore
 Offshore spot yuan    6.7985    -0.04%
 Offshore              6.9504    -2.18%
*Premium for offshore spot over onshore
**Figure reflects difference from PBOC's official midpoint,
since non-deliverable forwards are settled against the midpoint.

 (Reporting by Andrew Galbraith, Winni Zhou and Jing Xu; Editing
by Kim Coghill)